Market round-up: 28 – 1 February 2019

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in February 2019.

A week of science and economics

They say that investing isn’t an exact science; however, this week saw both science and economics come to the fore. Monday marked the anniversary of the formation of the periodic table, a major breakthrough in the field of chemistry. Created 150 years ago by Dmitri Mendeleev, organising the elements in columns to place them into a meaningful pattern that repeats on the basis of chemical properties, the original format still remains today. From Hydrogen to Oganesson, the table lists the complete range of elements discovered so far and still has room for more.

It was with some irony then that global markets rejoiced this week as the US Federal Reserve removed the element from their speech that investors fear the most, that of surprise. With mixed messages from America’s central bank characterising 2018, the Fed held interest rates steady on Wednesday and vowed to be patient with future hikes. This latest communication provided what many economists consider the clearest signal yet that a four-year tightening cycle may potentially be coming to an end. Speaking to reporters after the Fed’s latest two-day policy meeting, Chair Jerome Powell commented that “the situation now calls for patience…I think it’s the right time, I feel strongly that it is.” His words acted like lithium to markets, with a calmed S&P500 jumping 1.5% almost instantly. The tech-heavy NASDAQ also made significant gains as Apple released strong guidance on the rest of its service business, while social media giant, Facebook, exceeded forecasts for revenue and earnings for the fourth quarter, aiding the US market to its best start to the year since 1987.

Strong week for British markets as Brexit looms

Such strong rallies were not confined to US benchmarks as the domestic FTSE 100 and 250 also hit monthly highs. Britain’s blue-chip index rose throughout the second half of the week to record its best month since last April, as UK lawmakers voted down a proposal in parliament to prevent a potentially chaotic “no deal” Brexit, causing sterling to sink like lead. The FTSE 100 is often boosted by a weaker pound as many of its constituents are multinational conglomerates who earn their revenues in foreign currencies. Mid-caps were also on course for a golden month, their best in five and a half years, buoyed by strong corporate earnings and talks of M&A activity.

Italy feeling the strain

Over in the Eurozone, there were more woes for their third-biggest economy – Italy. Having only just fallen into a recession in late 2018, data shows worsening business conditions on the back of a decline in production led investors to sell out of Italian government debt, pushing yields higher. Italian banks were also under heavy pressure, dragging down the EuroStoxx index.

Job opportunities flourish in the US

On the economic data front, the US Bureau of Labor Statistics released Non-Farm Payroll and Average Hourly Earnings numbers on Friday. Considered invaluable to the US Fed when considering future rate policy, platinum numbers showed that the US economy added 304,000 jobs, far more than consensus forecasts of 165,000.

China and US relations warm in shadow of Chinese new year

Following on from a very positive January for the markets, it feels that a new year has brought fresh optimism to global markets as the trade hostility between US and China potentially thaws. It will quite literally be a new year for China next week as Tuesday ushers in the year of the pig. One of China’s most important festivals, markets on the orient will be closed for the entirety of the week, providing thinner volumes of trading in Asian markets.

UK economy looking at further uncertainty

A quieter week for economic data releases should thrust the spotlight onto domestic markets especially as events heat up in Westminster. As the Prime Minister travels between Brussels and London trying to appease all parties, the outlook for the UK economy becomes increasingly unclear. With this in mind, the Bank of England’s ‘Super Thursday’, a positive jamboree of economic data and views should take on added significance.

Decision time on interest rates

The bank is due to release its decision on interest rates, how their monetary policy committee voted on any moves and also its quarterly inflation report. The report will provide the bank’s projections for economic growth over the next two years and will be followed by a press conference from Mark Carney, the Governor of the Bank of England, afterwards. Thursday’s events should provide a valuable insight into the bank’s views on economic conditions and the headwinds facing the economy. In the past, the governor has been known to voice his personal opinions on the UK leaving the EU, often causing amplified volatility, especially in the currency markets.